SUMMARY- BASIC ECONOMIC CONCEPTS Flashcards
Scarcity?
we have unlimited wants BUT limited resources.
Trade-offs?
ALL the alternatives that we give up when we make a choice.
Opportunity Cost (OC)?
MOST desirable alternative given up when you make a choice.
what is economic?
is the science of SCARCITY.
study of how individuals and society deal with the idea of SCARCITY.
What is MICROeconomics?
- study of SMALL ECONOMIC UNITS, such as individuals, firms, and industries.
- looking at firms and indivisuals and their decision making and government as well.
what is MACROeconomics?
-is looking the big picture, the entire economy like inflation and unemployment and gross domestics product (GDP) and so on.
5 key economic Assumptions?
- Society has UNLIMITED WANTS and LIMITED RESOURCES (SCARCITY).
- Due to scarcity, choice must be made. Every choice has a cost (a TRADE-OFF).
- Everyone responds to INCENTIVES (=inducement: a thing that motivates or encourages one to do sth) and acts in their own self-interest.
- Everyone makes decisions by comparing the MARGINAL COSTS (additional costs) and MARGINAL BENEFITS(additional benefits) of every choice.
- REal-life situations can be explained and analyzed through SIMPLIFIED MODELS AND GRAPHS.
what is self-interest?
-me FIRST :*
self-interest refers to actions that elicit the most personal benefit.
==>the INVISIBLE HAND: when thousands act in there own self-interest, goods and services are created that benefit consumers andin e producers.
Investment?
the money spent by BUSINESS to improve their production.
in microeconomics, does capital mean money?
NO. Capital are goods, machines, ect.
2 types of goods?
- CONSUMER GOODS: created for direct consumption
- CAPITAL GOODS: created or INdirect consumption-> to make consumer goods.
Human capital?
- is the knowledge or skills required to produce things.
- any skills or knowledge gained by a worker through education and experience.
Economic system?
is the method used by a society to produce and distribute
2 main types of economic system?
-Centrally-planned (Command) market: where the government owns all the resources. It owns basically the workers and tells them where they can work and what job they should help.
Ex: South Korea
- Free market (capitalist) Market: come from the idea of Adam Smith. He basically said: let individuals decide what to produce and how to produce and who gets it and let the market do it
==>MIXED ECONOMIES: free market+ some government intervention. (almost all countries)
The invisible hand of capitalism?
-is the idea that society’s goals will be met as individuals seek their own self-interest (goals).
EX: society wants cell phones, cell phones producers can’t sell it unless they do sth that you want. It must be an awesome phone:
+Profit seeking producers will make more
+Competitions between firms result in low prices,high quality, and greater efficiency.
+The government doesn’t need to get involved since the needs of society are automatically met.
-COMPETITION AND SELF-INTEREST act as an invisible hand that regulates the free market.
